--MARKETS CHEER CHINA BACKING BAD DEBT IN EUROPE - ARE THEY AS DUMB AS THE REST OF US?--GEITHNER GIVING EUROPE ADVICE ON PUTTING THEIR FISCAL HOUSE IN ORDER....HUH?--IS THIS AUGUST 2007 IN TERMS OF CREDIT SPREADS?CARRIED INTEREST TAX ON INVESTMENT - WILL IT KILL ENTREPRENEURIAL INVESTMENT GROWTH & CAPITAL?

One day Team Obama announces a plan for enhanced rescission authority to impound wasteful spending, and the next day the House surfaces a plan for $200 billion in “stimulus” spending on transfer payments for welfare, even more unemployment compensation, still more Medicaid, and a bunch of special-interest subsidies.

So are we to believe that Obama will rescind the excess appropriations? Hardly. And since pay-go is dead, most of this new spending will not be offset. It will add to deficits and debt.

It’s the Greek disease. The welfare state run amok. Right here at home.

And in true class-warfare style, a small portion of the $200 billion is supposed to be offset by jacking up capital-gains taxes for investment partnerships. If passed, this would reduce investment, jobs, and economic growth, and enlarge the deficit. Higher spending and investment taxing is a true austerity trap.

This business of raising the tax rate on investment partnerships would be a particularly onerous burden on American entrepreneurs. And it would put this country at a decided disadvantage to our competitors in China and elsewhere in Asia (outside of Japan).

Increasing the tax rate on the investment portion of these partnerships (i.e., the capital gains) would boost the penalty rate from 15 percent to 38 percent -- and that includes the Obamacare payroll tax on investment scheduled for 2013.

So, instead of keeping 85 cents on the extra dollar earned from high-risk investment, the House proposal would drop the return to only 62 cents -- a whopping 27 percent incentive rollback. And by the same amount, it would raise the cost of new capital, draining investment liquidity from the private sector in order to finance government transfer payments.

Nothing could be worse. This is spread-the-wealth in its most crass form.

And if all that weren’t bad enough, the House proposal would tax the so-called enterprise value of these firms by applying the same penalty-rate structure on the sale of all or part of an investment partnership. In other words, it would make real-estate, venture-capital, and private-equity firms the only businesses in the country that are ineligible for long-term capital-gains treatment when they are sold in full or part.

One private-equity partner tells me that this would “tear apart the incentives for innovation that have been at the foundation of American enterprise since 1921, when the capital-gains differential vis-à-vis ordinary personal tax rates was first created.”

Compounding matters, we read in USA Today this week that private-sector personal incomes are at an all-time low, while government benefits as a share of income stand at an all-time high. I believe this is called redistribution.

And then comes a study from the Harvard Business School that states: “Stimulus Surprise: Companies Retrench When Government Spends.” What a shocker. (Hat tip to economist Don Luskin.)

House Democrats apparently don’t read newspapers from Greece or the United States. And they sure don’t read Harvard B-School studies.

Citadel Media announced the addition of The Larry Kudlow Show to its News Talk portfolio. Hosted by respected economist and CNBC anchor Larry Kudlow, the show launched on 77 WABC in 2006. It will be available in national syndication on weekends beginning 6/5.

“Larry Kudlow’s insightful opinions on money, politics and the economy are rooted in his understanding of the way Wall Street, Main Street and Washington operate,” said Carl Anderson, Senior Vice President of Programming and Distribution for Citadel Media. “His expertise will be an instant hit with our affiliates and offer their listeners a compelling perspective on the week’s financial news and events. This is a tremendous addition for our growing News Talk lineup.”

Kudlow served in President Ronald Reagan’s administration as Associate Director for Economics and Planning in the Office of Management and Budget. He is a nationally syndicated columnist, noted author and serves as an editor for National Review. He hosts The Kudlow Report each weeknight at 7 p.m. ET on CNBC and also co-hosts The Call for the television network, which airs weekday mornings at 11 a.m. ET.

“I’m looking forward to bringing our weekly program to a national radio audience and sharing my thoughts on the political factors shaping the current state of our economy with new listeners,” said Kudlow. “Each week we produce the show with a goal of offering individuals the best possible information to map their own investment strategy. I’m pleased to have the opportunity to deliver that message as part of the Citadel Media team.”

Tuesday, May 25, 2010

Stocks are getting battered across-the-board yet again today, with all of the major U.S. stock indices down 2 percent as of this writing. The Dow is down over 1300 points, or 12 percent, from its recent April 23rd high.

Investor fear is running rampant across Wall Street and around the globe. And, as if the contagious European debt crisis weren’t enough, the markets now have military tensions between North and South Korea to add to their laundry list of worries.

So, the question must be asked: Are we looking at a second half slowdown? Is growth going to come in only around 1-2 percent, instead of say, 3 or 4 percent? Is that the real message of our sinking stock market right now?

We’ve got Spanish banks going down now, bank-to-bank funding stress rising in Europe, gold still soaring, the euro still falling and Nero fiddling. Libor is now up 11 days in a row. Did someone say contagion? Systemic risk? Interconnectedness?

Meanwhile, credit risk spreads between high-yield junk bonds and Treasurys right here in the U.S. have jumped roughly 200 basis points in just the last month. These are not good signs.

Over in Europe, they’re still guaranteeing all of their welfare state countries. That’s wrong. What they really ought to be doing is temporarily guaranteeing their bank debt to avoid a credit meltdown. Let these countries sweat bullets to curb their welfare states.

One silver lining in all of this remains the steep Treasury yield curve. It’s still predicting no double-dip recession. We’ve also got a strong King Dollar which is pushing down energy prices. Gas prices are actually falling heading into Memorial day weekend. This of course becomes a tax cut for American consumers and businesses. That’s a good thing.

One final concern worth noting: if China were to jack up its renminbi right now, that could very well turn into one big global deflationary mistake.

Monday, May 24, 2010

It’s been a rough ride for stocks since the recent April high. Last week’s trading wasn’t pretty, and today’s 126-point drop late in the afternoon certainly didn’t help any. That said, at around $90 a share for the next year, stocks are starting to look pretty cheap after this correction. Maybe it's time to jump in, even with all this blood in the street.

Maybe.

Leave it to Washington to make matters worse. We’ve got a big, fat tax hike on private investment partnerships and foreign earnings of U.S. companies staring at us right now. Thanks Washington. That will of course ensure that we have less private investment. What a neat idea.

Let’s be clear about the consequences of tax hikes: They are nothing but a negative for future growth. Never forget: Growth is the key.

The best social policy we can develop is a capital formation spur that will supply jobs to those that need them. For dignity, to raise the human spirit, and to help folks produce and spend. All of these left-wing, anti-growth, “spread the wealth” attacks on opportunity and economic freedom are Europeanization—something we must devoutly avoid.

One plus I am highlighting right now is the greenback. King Dollar’s rise means a lower energy tax cut. This is a very good thing for American consumers and retailers. It’s also good for industrials, manufacturing and transports. And don’t forget about lower mortgage rates.

Across the pond, this whole Greece and European debt crisis mess remains largely unresolved. Fear is still out there. And while Germany's parliament voted “yes” to the trillion-dollar rescue package, France won’t vote until May 31st. Heck, Italy and Spain haven't even set parliamentary authorization voting dates yet. Huh? Hello? Anybody home? Don’t they know there's a crisis?

As far as the credit markets are concerned, the short-term funding markets for bank-to-bank lending are still stressed with Libor and the TED spread still widening. Not good. Banks are afraid. No one wants to lend. Incidentally, Libor, for three-month loans in dollars recently rose above 0.5 percent for the first time since July 24th. I wouldn’t call that a healthy signal.

Look, I’m still convinced the Europeans need a big-blanket, bank debt guarantee. That would buy them time to get through this chaos, and on the way to much needed, alleged, welfare-state cost cutting. That said, I’m not convinced Greece could even paint the Parthenon on time, let alone afford the paint.

Thursday, May 20, 2010

Amidst all of the fear, panic, and growing stock market doom and gloom, I’d like to offer an important silver lining. It’s a little piece of economic optimism. Look no further than the sharply rising U.S. dollar. It has completely stopped inflation dead in its tracks. In fact, as the headline CPI for April reported yesterday showed, inflation has actually slipped one-tenth of 1 percent. Some are calling it the lowest inflation reading since 1960. For the moment, we are witnessing price stability. Not inflation, not deflation, but price stability. Would that it would last.

For ordinary American consumers out there, this is called a tax cut. Gasoline prices have dropped 2.4 percent, despite the fact that we’re heading into the busy summer driving season. When was the last time gas prices fell heading into Memorial Day? So that’s a tax cut. Clothing prices dropped seven-tenths of 1 percent. Another tax cut.

Now back to the sharply rising dollar. King Dollar is always good. In gold terms, the dollar has been very weak, although I notice that gold in dollar prices is back under $1,200. However, the greenback’s surge relative to other paper currencies is depressing energy and other commodity prices. Guess what? That has additional tax-cut implications. In other words, amidst the V-shaped recovery, which includes huge profit gains, a mild commodity correction after a huge run-up is actually a good thing. It has a tax-cut impact for ordinary working Americans.

Sure, fears over the European debt crisis are still out there. I get that. But I’m reaching the point right now where all of this manic Chicken Little stuff is beginning to look overdone. Is it possible that there are too many fears about all those fears? I think so.

Look, I’m not a big fan of fear. I don’t like it one bit. And I do believe the Europeans will defend the euro as a currency — even though its value may slide more, it will not collapse.

But while I’m no better than anyone else at picking precise turning points, I’m actually beginning to wonder whether this recent stock market correction isn’t about to come to an end. King Dollar, price stability, strong profits, and a steep yield curve all suggest that there is good value in stocks after this correction runs its course.

Wednesday, May 19, 2010

After last night’s primary elections, a pipedream came to me: A new tea-party center is forming in the Republican Senate caucus. It will be the first Reagan nucleus in many years, one that will give the GOP a strong limited-government, cut-spending, low-tax-rate, stop-government-controls, and end-Bailout Nation message that will have clarity and gusto and will reverberate throughout the country.

Here’s how it’s going to work: Rand Paul will grab the Senate seat in Kentucky. Marco Rubio will take Florida. Mike Lee will win in Utah. Pat Toomey will finally prevail in Pennsylvania. And Carly Fiorina will knock off Barbara Boxer in California.

Yup. That’s how I see it. And this new tea-party Senate nucleus will join free-market stalwarts like Jim DeMint, Tom Coburn, Jon Kyl, Richard Shelby, Jeff Sessions, and John Thune. I’m probably leaving somebody out in the Senate, and I apologize in advance. But that’s what I’m thinking. It’s a pity Judd Gregg is retiring; he could be part of that group also.

This will be a reformist nucleus, tackling spending, taxes, and even monetary and currency policy. It will unabashedly propose free-market reforms to replace the Obama welfare state and to finally curb the avalanche of debt creation.

It looks to me like the GOP can in fact capture the Senate, by the way. But even if they don’t, this new group will revolutionize politics.

Monday, May 17, 2010

A strong and steady King Dollar is always essential to overall free-market prosperity and economic growth. But a wildly fluctuating greenback is not.

Since last November, the trade-weighted dollar index has risen roughly 16 percent. Moreover, the dollar has jumped approximately 25 percent against the euro alone. Of course, the euro’s collapse is a function of the debt crisis in Greece and the European debt-default contagion threat. But roughly 15 percent of U.S. trade is done with the European area. So here’s my point: This huge dollar jump against the euro negatively impacts the terms of trade for U.S. exporters and the S&P corporate profits of global companies.

It’s a deflationary influence when the dollar shoots up way too fast. Incidentally, during the dollar-appreciation move that began late last year, the stock market has basically stopped advancing. In fact, since mid-April, when the dollar made another big move versus the euro, cyclical sectors like commodity materials, energy, industrials, and retailers have gotten clobbered by nearly 10 percent. There is clearly a dollar influence going on here.

Look, currency stability -- a steady King Dollar -- is what we want for growth. We need steady money. But with all these currencies fluctuating so wildly right now, it’s difficult to see how a dollar that keeps shooting higher and higher is going to be a good thing.

Then, of course, there is the related currency issue of a surging gold price. Gold, in dollars, euros, and everything else, is roaring higher. It is saying a pox on all your houses. That’s the message. Too much deficit spending. Too much debt. Too much central-bank liquidity, especially since the European Central Bank threw in the towel.

Nothing good ever came out of a gigantic gold move like this. Nothing. It reminds me of the 1970s, when gold shot from $35 an ounce to $800 across a ten-year span. Look, in just the last ten years, gold has gone from $250 to $1,230. Historically, that’s a stagflation signal. It’s not good.

We need steady money and much smaller government. And guess what? We’re not getting it.

I don’t want to see the dollar shooting up by leaps and bounds every week. I want a steady dollar. And I sure don’t want to see gold shooting up by leaps and bounds every week either. These are terrible signals. And the currency complication is screwing up the other Washington problems of too much taxing and spending and debt creation.

Friday, May 14, 2010

Washington, D.C., is breakdown city. There are the fiscal breakdowns of unaffordable Obamacare with two new entitlements, and an unaffordable $862 billion stimulus plan that has had little or no economic impact. There's the economic breakdown of a spread-the-wealth tax attack on investors and successful earners. There's the loan breakdown of a full-scale government assault on the banks, including a $90 billion bank tax. And there's an inflation breakdown as more doves are being appointed to an already too-ultra-easy Federal Reserve.

These are all anti-growth policies. Yes, the economy is in the throes of a V-shaped recovery. I've been saying that for months now. But is this recovery a temporary false dawn, or can we be confident it has legs? Will Washington's deficit-spending and debt-monetization policies be reversed, or is the soaring gold price a true negative signal for the future?

And is the prosperity path really in our future? Or are we going down the welfare-state road of Old Europe?

Will we grow, or will we stagnate?

The markets got whacked this week as more government agencies whacked the banks. The G-men have launched a full-scale bank assault. And for what? Do they really want us to go back to using Indian wampum, or do they want a healthy and recovering banking system to provide credit to the economy? Bail out the banks, then criminalize them, then throw them in jail? Huh?

Thursday, May 13, 2010

Please join us this evening as we welcome two wise men from Wall Street ... Home Depot co-founder Ken Langone and former New York Stock Exchange chairman Dick Grasso.

Topics will include the government's assault on banks, the fiscal breakdown, gold rally, taxes, mid-term elections (is political regime change coming?) and what really went wrong during last week's stock market drop.

“Friends, Romans, countrymen, I come to bury Caesar, not to praise him.”

Oops. What the European leaders really meant to do with their big-bang, trillion-dollar sovereign-debt rescue was to save the euro currency, not to bury it. But with the cave in by European Central Bank head Jean-Claude Trichet (formerly a hard-money man and closet gold watcher) to use the “nuclear option” to buy up dubious sovereign debt, the euro is likely to keep depreciating.

When central banks buy bonds they pay for it with new cash. That’s almost always negative for currency values. Ben Bernanke bought a ton of new mortgage and Treasury bonds last year, and until the Greek crisis came along, the dollar sunk like a stone. Get ready for more euro declines.

And then you wonder if the European leaders came to save welfare socialism rather than bury it. The mere fact that this rescue package will provide loan guarantees to the very countries that boast the largest welfare states and can’t afford to pay for them probably suggests that the loan guarantees will guarantee more welfarism.

There’s a lot of talk about belt-tightening and spending cuts. But where’s the enforcement mechanism? No one knows. This is the Achilles’ heel of the whole European Union experiment. The monetary discipline has now been broken while the sought-after fiscal discipline is still broken.

If the trillion-dollar European package succeeds in calming lending markets and stopping an outright credit freeze-up, that’s good, at least in the short run. Perhaps it will allow a cyclical-growth recovery, with JPMorgan indexes of Euroland purchasing managers or manufacturing and services showing the possibility of a 3 percent continental growth rate. Yet while a cheap euro will stimulate exports in the short run, in the longer term it will stimulate inflation.

And in addition to Western Europe’s failure to enforce real welfare-state reductions, there really is no flat-tax reform — such as adopted in Eastern Europe — to promote growth. Ironically, the countries of Western Europe, including the southern tier of Greece, Spain, Portugal, and Italy, have a lower corporate tax rate than the United States. That is good. But they could build on that with real flat-tax reform, rather than jacking up value-added taxes.

So there are no enforced spending cuts, there is no flat tax, and there is plenty of political upheaval. (Angela Merkel just lost an important regional election.) So right now, on the day after a big relief rally in stock and bond markets, a sober assessment of the so-called rescue package doesn’t look so great. Actually, the real winner looks to be gold, which is up $20 this morning and is almost at its all-time high of $1,226. That’s a sign of no confidence in the European story.

The euro currency has been compromised and the European welfare state continues. Not good.

Thursday, May 06, 2010

Panic has gripped stock markets worldwide over the Greek debt crisis and the threat of a debt-deflation contagion through banks in Europe (primarily) and the U.S. that own the bonds of Greece, Portugal, Spain, and so forth. If these bond asset prices collapse totally, lending facilities would be badly crimped for both the short and long term. And that, in turn, would damage prospects for economic recovery.

The Dow closed today off nearly 350 points. Earlier in the day the Dow was down 850 points, though there is talk of computer glitches and technical problems that may have temporarily undermined trading. Either way, the market is getting creamed as a result of the Greek story.

The real winner today? Gold. It’s up about $25, to $1,200. People want real money. They do not trust the debt-laden currencies of Europe and the United States. Or for that matter Japan. Gold is fast becoming, once again, a reserve currency of choice.

Meanwhile, the EU/IMF bailout package for Greece, which does include draconian budget cuts, contains a 2 percentage point increase in the VAT tax that is anti-growth. Steve Forbes correctly said last night on CNBC that the Greeks should be slashing spending and should move to a flat tax, just like the countries in Eastern Europe. I gave him a Nobel Prize for that.

Market chatter, at least in Europe, is suggesting that the $150 billion bailout is not enough. But it may be that the left-wing union mobs in Athens have caused a major backlash throughout Europe and elsewhere. Despite the mob, the Greek parliament was able to pass legislative approval of the bailout package. This caused a small stock rally for a brief time this morning.

The German parliament will vote tomorrow on this package. Should it be voted down, all hell will break loose again in world stock and credit markets.

And then there’s Britain. The Tories may win a close election tonight and dethrone Labour. But if so, David Cameron & Co. will be a minority government.

I still believe that one of today’s key themes is a global revulsion toward the massive spending and debt programs put in place by the U.S., Euroland, the G20, and the IMF back in late 2008 and 2009. Unwinding these Keynesian mistakes is not an easy thing to do. But financial markets are now exerting discipline on this out-of-control spending and borrowing.

Financial markets don’t like these big-government policies at all. Neither do voters. The markets don’t trust the ability of these nations to service the interest payments on all this new debt. And voters are much opposed to the tax-hike implications of the debt.

In particular, the U.S. and the Western countries in Europe have lurched left in recent years. It’s bad for growth, it’s bad for credit quality, it’s bad for banks, and it smacks of credit-deflation bankruptcy. In short, it’s a bloody mess.

The ink was barely dry on the $150 billion EU/IMF bailout of Greece when world stock markets tanked on two major fears. First, financial analysts are concerned that the bailout money won't be enough to cover Greece's borrowing needs from its out-of-control budget deficit. Second, there are fears that the EU/IMF deal will not be approved by the German parliament in a vote scheduled for Friday.

Additionally, there are new worries that the Greek debt contagion will spread to Spain and elsewhere in Europe. The looming specter of debt default and deflation is heavy in the air for investors worldwide.

Making market matters even riskier, German chancellor Angela Merkel faces key regional elections this Sunday in populous North Rhine-Westphalia, including the conservative areas of Cologne, Bonn, and Stuttgart. These cities hate government debt and overspending as much as the rest of Germany, if not more so.

The great postwar German leader Konrad Adenauer came from Cologne. He was a conservative Catholic who despised Nazism and Soviet communism. He also was an inflation fighter. To stop hyperinflation in the postwar period, Adenauer sponsored the new German mark and linked it to the dollar, which in those days was as good as gold.

Today, all of Germany still hates inflation. And the Germans are afraid that the currency printing presses used to buy bad bailout bonds will return the country to a haunted past. So it's tricky business for Merkel to sell the Greek bailout on the eve of local elections that could disrupt her already thin governing coalition.

Merkel is playing a double game here. She's telling the Financial Times and the Wall Street Journal that the bailout must pass in order to save the euro currency. At the same time, she's telling folks at home that Greece's extravagant social-welfare entitlement system of bankrupt promises is a disgrace that Germans would never tolerate.

Apparently, credit markets won't stand for it either. Both around the world and here in the U.S., credit markets are boycotting massive government debt creation. The result is that gold is fast becoming a currency substitute, with strong markets for the yellow metal saying a pox on all your houses.

Merkel and other European leaders would like the IMF to be the fiscal-discipline policeman for Greece and the rest of southern Europe. But as Nobelist Robert Mundell has argued, while the unified and fixed exchange rate of the euro currency system, along with liberalized trade, has been good for economic growth, things have broken down with the failure of the so-called fiscal-stability pact that was never enforced.

With tens of thousands of Greek government union workers marching in the streets of Athens calling for more general strikes in protest of IMF austerity measures to cut back on bloated pensions, voters in Germany and perhaps other EU countries do not believe the bailout conditionality will ever work. Voters see solvent nations being saddled with more debt that the European Central Bank may well monetize into higher inflation.

Perhaps the Greeks should consider a privatization asset sale of the Parthenon, or some of the beautiful Greek islands, as a means of raising desperately needed cash. Think of it: Greek Thatcherization. Of course, in addition to privatization, Margaret Thatcher used her budget ax. That's something neither Greece nor Spain appears capable of implementing in a sustained way. Mrs. Thatcher also reminded us that the problem with socialist governments is that they finally run out of other people's cash.

What's more, while Greece and Spain have moderate 30 percent business tax rates, lower than rates in the U.S., their combined personal and VAT tax rates come to about 60 percent. Team Obama take note: These are anti-growth tax policies.

Indeed, the debt follies of Europe and the bankruptcy of the European entitlement state should be a lesson for Obama's Washington, where overspending and borrowing have reached absurdly grand heights. As a share of GDP, U.S. debt is projected to move toward 100 percent in the wake of the new Obamacare entitlements. That's near the 125 percent debt ratio of Greece.

And just like Greece, U.S. government union-worker benefits, which run 50 percent above private-sector equivalents, are bankrupting federal, state, and local budgets. They're also spawning a massive voter revolt against big-government debt that will bear fruit this November in the tea-party midterm elections.

In a vague sort of way, British Tory leader David Cameron is opposing the spend-and-borrow mess of Gordon Brown's Labour party that so resembles Obama's policies. Consequently, Cameron looks set to win the U.K. election on Thursday. That's good news for England. But it could embolden German legislators to vote against the EU-IMF bailout for Greece on Friday. And that could create an even bigger stock market mess, at least in the short run.

Call it a spend-and-borrow debt mess. A pox on all your houses, at least until financial-market and voter discipline force the dim-witted politicians to radically change course.

Stubbornness is a bad trait in politics and policy, one that will be punished at the polls this November.

The Obama administration continues to argue that its massive federal-spending campaign is essential to economic recovery. Yet the latest GDP report from the U.S. Department of Commerce shows that the 3.2 percent first-quarter economic growth rate got no help from government spending.

In fact, combined federal, state, and local spending actually fell 1.8 percent. What’s more, over the last three quarters of a mild V-shaped recovery, with an average quarterly rebound of 3.7 percent, government spending actually exerted a small net drag (-0.03%) on growth.

I guess it’s time to ask our Keynesian friends in and out of government what exactly happened to those vaunted multiplier effects they so loudly proclaimed. So far, there is zilch effect.

Turns out that all those entitlement transfers of income borrowed and taxed from Peter to pay Paul have made no direct contribution to the nation’s production of goods and services. This, however, comes after $318 billion of spending through April 23, according to the website recovery.org.

Pretty expensive fiscal habit, wouldn’t you say? But for what?

And who can blame taxpayers for saying, “Show me the money that was supposed to generate growth.” In the winter quarter, consumer spending increased 3.6 percent and business equipment investment rose 13.4 percent, all while inventories were rebuilt by $31 billion. But the G in the GDP equation C+I+G+(X-M) actually dropped. (That is, consumption + investment + government spending + the net exports/imports trade.) That’s right, dropped.

That failed G for federal, state, and local spending may cost untold trillions of dollars of future tax and debt burdens. Rather than stimulate growth, this will depress it in the years to come — unless we do something about it.

How about stopping the madness right now? How about “de-stimulating” the remaining $500 billion of unspent Keynesianism?

And how about some truth-telling about the big pick-up in business profits that is really behind the recovery — profits that have fueled a stock market boom which has created trillions of dollars of new wealth through capital gains that are being spent and invested in the private sector?

The only temporarily effective government-stimulus effect is coming from the Fed’s free-money, zero-interest-rate policy. And here, too, is stubbornness. For the economic emergency has long passed; the recession ended in last year’s second quarter. Yet the Fed — now controlled by Obama doves — stubbornly persists in maintaining an emergency pump-priming policy that surely will drive up inflation in the years ahead.

According to Dan: The correct capital gains tax rate is zero because there should be no double taxation of income that is saved and invested. This is why all pro-growth tax reform plans, such as the flat tax and national sales tax, eliminate the capital gains tax. Unfortunately, the President wants to boost the official capital gains tax rate to 20 percent, and that is in addition to the higher tax rate on capital gains included in the government-run healthcare legislation.

About Me

Larry Kudlow

Lawrence Kudlow is CNBC’s Senior Contributor. For many years, he was the host of CNBC’s “The Kudlow Report”. He is also the host of The Larry Kudlow Show, which broadcasts on Saturdays from 10am to 1pm ET on WABC Radio and is syndicated nationally by Cumulus Media. He is also a nationally syndicated columnist and a former Reagan economic advisor. CNBC's The Kudlow Report also airs on Sirius (ch.129) and XM (ch.127) weeknights at 7pm ET.